Court of Session & High Court of Justiciary Opinions - Recent Cases

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Monday, 7 September 2009

From 1 October, RBS and Natwest customers will pay £5 for a bounced cheque and £15 per item on an overdrawn account. Still too much - yes of course, given the true cost of these charges is closer to £2.50 or less. But this is big news as the current RBS charge for a bounced cheque is £38, with £30 being charge per item on an overdrawn account.

What’s going on? The UK's Supreme Court (formerly the House of Lords) will shortly issue its decision in the OFT test case on bank charges. Both the High Court and the Court of Appeal have already found that the 1999 Unfair Terms in Consumer Contract Regulations apply in principle to current account terms which impose fees and charges for going overdrawn without permission.

Many commentators expect the Supreme Court to reach the same conclusion. Even if they do the UK banks could still fight on the merits of the case: they could argue their fees are fair. That said, this is probably the weakest part of their defence, as there is considerable evidence to show that their charging structure is unfair. Charges are targeted at the least able to afford them, and are designed to make an obscene mark-up.

RBS and Natwest are making a smart move. The writing is on the wall for unfair bank charges and they are anticipating this. It’s only a matter of time.

For example, back in 2006 most UK credit card companies were charging £25 or more for failing to make a minimum payment. The OFT estimated this practice was scamming the British public in excess of £300m per annum. The OFT intervened and said any credit card charge in excess of £12 would be treated by it as unfair. What happened? Most credit card companies lowered their charges to £12.

I think RBS is protecting it’s future financial position. It has calculated that when the banks lose the OFT test case they will have to reduce their charges anyway. So better to bite the bullet now.

Of course this still leaves the thorny issue of past unfair charges – and in theory there could be backdated claims worth up to £10bn across the UK, and at the very least we are definitely talking about several billion of pounds in claims.

Effectively, RBS are trying to draw a line in the sand for future claims. Other banks would do well to follow suit. The revolution isn’t far off, and there won’t be any more taxpayer handouts!